European banks face $28bn blow

EUROPE’S biggest investment banks face more years of misery, a top analyst warned yesterday, with any return to normality in 2014 dashed as fines and legal bills of more than $28bn (£17bn) outpace planned cuts for years to come.

The biggest six investment banks in Europe plan to shake up their businesses to cut out annual costs of $13.2bn, mostly by the end of 2015.

But the benefits of those cuts will have to wait, as analysis from JP Morgan shows the savings represent a fraction of the mounting legal bills.

Analyst Kian Abouhossein estimates the litigation bills will total $28.8bn – more than two years’ worth of cost savings.

It is more bad news for banks, which were hoping their legal woes could be coming to an end after a year of more Libor fines and the launch of new probes into markets like foreign exchange benchmarks.

The foreign exchange benchmark fiddling claims have the potential to be most costly, Abouhossein said, while probes are ongoing over Libor fixing and new claims have emerged that banks may have artificially adjusted prices of mortgage backed securities. Each of the top six banks will pay more in litigation costs than its annual cost savings, Abouhossein believes.

Barclays aims to save another $1.7bn, well below its estimated total bill of $8.7bn; Deutsche Bank’s $3bn savings will be similarly dwarfed by costs of $8.9bn; and UBS’ savings of $1.7bn are set to be outweighed by a litigation bill of $4.7bn. Meanwhile Credit Suisse aims to save $1.5bn, below its expected $2.4bn costs; BNP Paribas plans on cutting another $1.5bn from its cost base, below the likely $2.3bn total bill; and Societe Generale is in line for a $1.8bn knock, three-times its $0.6bn savings target.

JP Morgan’s estimates are above the banks’ own provisions – Deutsche Bank has set aside €4.1bn (£3.4bn) according to its most recent quarterly results.